As General Electric (GE) welcomes new chief Larry Culp, Cowen’s analyst Gautam Khanna is weighing in on how he expects the company will fare from here. On the one hand, Khanna believes Culp, the 54-year-old ex CEO of Danaher (a science and technology company) has a plan that will improve GE’s long-term financial health. On the other hand, he recognizes the company may suffer in the short term.
As such, Khanna maintained a Market Perform rating, while cutting the price target to $12.00 (from $14.50), which implies a slight downside potential from where the stock is currently trading. (To watch Khanna’s track record, click here)
Khanna opined, “Mr. Culp’s incentive comp plan is aligned for the long-term health of GE, but does not obviously burden him with financial downside, even if he forces GE to take painful NT actions. E.g. His p.a. cash comp ranges from $2.5-$6.25MM, with an additional $15MM of annual, fair value PSU grants — a potentially high floor, since the new Board can change the PSU metrics, post Culp’s portfolio review, so that they are less onerous. LT, Culp has a PSU kicker of 2.5-7.5MM units if the stock averages 50-150% higher than $12ish/sh for 30 straight trading days (until 9/30/22). Thus, we expect Mr. Culp may do what prior CEO Flannery didn’t: shore up the balance sheet, quickly, to allow more flexibility to operate.”
“We expect actions to shore up the balance sheet (dividend cut; EPS/FCF reset; possible equity raise), but a full reset isn’t likely until early 2019, extending the overhang. New PT=$12 based on SOTP, w/ downside risk,” Khanna added.
GE’s skittish past has investors and analysts keeping an eye on the stock as leadership could truly make a mark on the company. Could Culp be the saving grace?
Out of 17 analysts who’ve had their eye on GE stock in the last three months, TipRanks finds more than half (9) issue a Hold rating for GE, with 6 recommend a Buy, while only 2 suggest a Sell. The consensus price target is $14.85, significantly higher than what the analyst in this piece thinks the stock is worth at this time. (See GE’s price targets and analyst ratings on TipRanks)